2. Copyright 1999 ISG-Telecom Consultants 727-738-5553 www.isg- telecom.com 1 Presents “How & Why to Become an ISP/CLEC”

3. Copyright 1999 ISG-Telecom Consultants 727-738-5553 www.isg- telecom.com 2 What Is a CLEC? Competitive Local Exchange Carrier Essentially, a new local dial-tone provider  A CLEC has the same rights & responsibilities as the ILEC (Incumbent Local Exchange Company)  Important: becoming a CLEC enables a large retail customer to become a peer wholesale customer

4. Copyright 1999 ISG-Telecom Consultants 727-738-5553 www.isg- telecom.com 3 Why Become an ISP/CLEC

5. Copyright 1999 ISG-Telecom Consultants 727-738-5553 www.isg- telecom.com 4 CLEC's are peers of ILEC's, not just customers Arbitration ability in front of Public Utility Commission and FCC Inter-company reimbursements and settlements Access and reciprocal compensation revenues Opportunity to build fiber networks on local rights of way Ability to buy UNE (unbundled network elements) from ILEC at regulated low rates Allows for more flexible set-up of services than regular customers of the ILEC can get via ILEC tariffed offerings

6. Copyright 1999 ISG-Telecom Consultants 727-738-5553 www.isg- telecom.com 5 State by State mandated 13 to 25 percent below-tariff wholesale rates on circuits and services for switchless reseller CLECs; Greater discounts of 20 to 45 percent below- ILEC tariff retail rates on circuits and services for facility-based CLECs; Availability of carrier class services and UNE’s unavailable at retail levels; Most importantly, the ability to profit from the telecom services used by your existing customer base and community by taking on the billing and marketing functions

7. Copyright 1999 ISG-Telecom Consultants 727-738-5553 www.isg- telecom.com 6 CLEC Versus ILEC Unlike ILEC's, CLEC's are not restricted to local and intraLATA business CLEC's can offer long distance service bundled with local service and additional telecom services ILEC's have years of cost studies posted with PUC/PSC to justify their high rates....now they can't lower them to compete with CLEC pricing

8. Copyright 1999 ISG-Telecom Consultants 727-738-5553 www.isg- telecom.com 7 Why Should an ISP Become a CLEC Why Should an ISP Become a CLEC

9. Copyright 1999 ISG-Telecom Consultants 727-738-5553 www.isg- telecom.com 8 The best news is that ISP’s are superbly positioned to move into the Competitive Local Exchange (CLEC) business. ISPs have a built-in customer base, particularly for data access which naturally leads to gleaming new revenues from the existing customer base by selling data circuits at retail while paying the wholesale rate and by adding voice services and features on a consolidated bill. The #1 reason that ISP’s should become ISP/CLEC’s is ADDITIONAL PROFITS!!!

10. Copyright 1999 ISG-Telecom Consultants 727-738-5553 www.isg- telecom.com 9 Furthermore, the additional and auxiliary services that the ISP/CLEC can resell include long distance, conference calling, calling cards, full Centrex services, data and voice circuits, DSL and their own internet service, on a single convergent billing platform broken out by customer identification codes.

11. Copyright 1999 ISG-Telecom Consultants 727-738-5553 www.isg- telecom.com 10 Other Reasons ISP’s are well Positioned to become an ISP/CLEC

12. Copyright 1999 ISG-Telecom Consultants 727-738-5553 www.isg- telecom.com 11  ISPs have advantages in local, long distance, and data services through strategic alliances, bulk purchasing of long distance minutes, voice over IP deployment, consolidated billing, and the ability to deploy the latest in switching equipment without the expense of legacy equipment that the ILEC’s have that may not be able to deliver high speed digital services.  Access to existing ILEC network at discounts on a pure resale basis as well as in converting their current circuits from retail pricing to wholesale pricing. ISPs can additionally configure their systems to deploy tandem switches in each LATA to gain free inbound T-1s from the ILEC while consolidating their modem pools at the tandem for cloud access. Virtual co-location is also available.

13. Copyright 1999 ISG-Telecom Consultants 727-738-5553 www.isg- telecom.com 12  No existing baggage and relatively low regulatory requirements compared to the ILECs’ regulated rate of return and cost study legacies for pricing.  Information services for LAN/WAN customers including web page design and hosting, help desk services, configuration, and maintenance services for company internal communications systems.

14. Copyright 1999 ISG-Telecom Consultants 727-738-5553 www.isg- telecom.com 13 Switch Types Class 4 versus..Class 5 Switch Types Class 4 versus..Class 5

15. Copyright 1999 ISG-Telecom Consultants 727-738-5553 www.isg- telecom.com 14 Tandem Switch vs.. Class 5 Switch Tandem Switch (class 4) Built for incoming/outgoing calls to a central point in the LATA for Data Carriers & Long Distance ILEC's must provide inbound trunking at no charge to the CLEC’s tandem switch with CLEC’s running return fiber to ILEC's tandem Class 5 Switch Built to handle all voice & data Modules available to partition switch into voice switch plus tandem ID Many CLEC's have one (1) main switch with small remotes in the COs ILEC's tend to have full class 5 switches in each CO

16. Copyright 1999 ISG-Telecom Consultants 727-738-5553 www.isg- telecom.com 15 Equipment Needed For Voice:  Class 5 Switch  (x) Co - Located xDLCs  Fiber - installed @ $10 Per foot (or leased) For Data Only:  Class 4 Tandem Switch  Fiber  Router  (x) CO - Located xDLCs

17. Copyright 1999 ISG-Telecom Consultants 727-738-5553 www.isg- telecom.com 16

18. Copyright 1999 ISG-Telecom Consultants 727-738-5553 www.isg- telecom.com 17 Basic Local Call

19. Copyright 1999 ISG-Telecom Consultants 727-738-5553 www.isg- telecom.com 18 Basic Long Distance Call

20. Copyright 1999 ISG-Telecom Consultants 727-738-5553 www.isg- telecom.com 19 Support Services Needed For Voice: Operator Services Customer Service Billing Back Office Directory Assistance Repair/Install E911 Numbering Resources Switch Maintenance Regulatory Maintenance Tax Compliance For Data Only: Customer Service Billing (simplified) Back Office Repair/Install E911 Numbering Resources Switch Maintenance Regulatory Maintenance Tax Compliance

21. Copyright 1999 ISG-Telecom Consultants 727-738-5553 www.isg- telecom.com 20 How to Become an ISP/CLEC How to Become an ISP/CLEC

22. Copyright 1999 ISG-Telecom Consultants 727-738-5553 www.isg- telecom.com 21 Steps in Creating a CLEC Step 1- Form (new) separate corporation - This prevents the co-mingling of regulated income from non-regulated income -Allows the ISP company to be first and largest customer of CLEC company Step 2- Determine which types of services are to be offered; -Data only..........Long Distance, too? -Voice only........Conference calling? -Voice & Data....Other telecom services?

23. Copyright 1999 ISG-Telecom Consultants 727-738-5553 www.isg- telecom.com 22 Steps in Creating a CLEC (cont’d) Step 3- Gather necessary checklist items for state PUC certification application -Financials & pro-forma -Background of principals -Corporate data Step 4- Draft a tariff based on state PUC's requirements -Level of detail varies significantly -Timing varies significantly -States have individual requirements for free DA calls & Lifeline services

24. Copyright 1999 ISG-Telecom Consultants 727-738-5553 www.isg- telecom.com 23 Steps in Creating a CLEC (cont’d) Step 5- Determine prior to tariff preparation if CLEC will be switchless or facilities based Step 6- Prepare state's form for certification and file with state PUC/PSC either prior to sending or with the completed tariff Step 7- Negotiate or opt-in to an Interconnection Agreement - connects new CLEC's network & switch to ILEC's or other CLEC's, spells out how payments, trouble tickets, network alarms, etc. will be handled - sets rates for Resale or Unbundled Network Elements from ILEC

25. Copyright 1999 ISG-Telecom Consultants 727-738-5553 www.isg- telecom.com 24 Steps in Creating a CLEC (cont’d) Step 8- For Non-Facilities Based (switchless) Resellers, a decision must be made as to whether to buy out of the wholesale tariff or negotiate a term and Volume Agreement with the ILEC’s and/or CLEC’s Step 9- If long distance is to be offered, carrier and rate must be established Step 10- If switchless reseller, procedures and training are established

26. Copyright 1999 ISG-Telecom Consultants 727-738-5553 www.isg- telecom.com 25 Steps in Creating a CLEC (cont’d) Step 11- If Facilities-Based, the following services must be obtained via ISG Partners: -Customer service E911 -Back Office & SS7 connectivity -Billing BB Interconnection to ILEC -Operator services Connection to Tandem(s) -Numbering Resources Equipment set-up -Repair/Installation Switch Maintenance/Repair

27. Copyright 1999 ISG-Telecom Consultants 727-738-5553 www.isg- telecom.com 26 Steps in Creating a CLEC (cont’d) Step 12- Beta Test System and Update LERG with new switch ID (3 months) Beta test billing Beta test new order processing (back office) Sales, Marketing & Product training

28. Copyright 1999 ISG-Telecom Consultants 727-738-5553 www.isg- telecom.com 27 17 support categories every ISP/CLEC needs to consider Business Office Accounting Office Customer Service Center Equipment Provisioning Service Activation Network Administration Network Data Administration Maintenance Maintenance (Switching / Transport / Access)

29. Copyright 1999 ISG-Telecom Consultants 727-738-5553 www.isg- telecom.com 28 Support Categories (Cont’d) STP / SCP (Signal Transfer Point / Signal Control Point A.K.A. SS7) Repair Service Bureau Disaster Recovery Directory Assistance Operator Services Security Facilities 911

30. Copyright 1999 ISG-Telecom Consultants 727-738-5553 www.isg- telecom.com 29 PUC Requirements The following information will be needed to begin preparation of the necessary applications and associated tariffs. All information provided by the company would be treated as proprietary and confidential by ISG- Telecom Consultants. Please be aware, however, that once an application and tariff are filed with a regulatory agency, these documents become public documents, and are generally available to the public, pursuant to each agencies’ rules or state statute, unless confidential treatment or proprietary data is sought. From time to time, additional information may be required, and will be requested, as it is needed. Some states have adopted sunshine laws, which prevent applicants from requesting confidential treatment of proprietary data.

31. Copyright 1999 ISG-Telecom Consultants 727-738-5553 www.isg- telecom.com 30 Elements of a CLEC Application

32. Copyright 1999 ISG-Telecom Consultants 727-738-5553 www.isg- telecom.com 31 Corporate Data The company’s legal name, address and telephone/facsimile numbers/800 # for customer service issues Article of Incorporation - Date of Incorporation Copies of evidence to transact business as a foreign corporation filed with the Secretary of State in each state, if applicable Listing of Officers and Directors, including addresses and titles Listing of owners, owners’ addresses and percentage of ownership, number of stocks issued. Also a list of any affiliated interests, if applicable Biographical data or resumes of the company’s senior managers, highlighting managerial and telecommunications experience Identification of who is authorized to sign documents for the company along with the name, address and contact of company’s regulatory contact and liaison Most recent summarized income statement and complete balance sheet (Past 2 years - audited if possible). Personal Guarantee of principle’s (as applicable in certain states)

33. Copyright 1999 ISG-Telecom Consultants 727-738-5553 www.isg- telecom.com 32 Service Information A description of proposed services and associated recurring and non- recurring rates Minimum initial billing increment and additional billing increments for each service; i.e. 18 second initial billing increment and 6 second increments thereafter for 800 service Proposed service area (if not state-wide) A list of underlying carriers and services purchased Customer service procedures for refunds, credits and time of operation including emergency or after hour’s procedures for processing customer service calls. Please include customer service telephone numbers A description of how bills will be rendered and collection procedures, if applicable Will the company provide operator services (e.g. third party billing) If offering “1+” services, will the company collect advanced payments or deposits and if so, what are the deposits/advanced payments policies How are the company’s services marketed (e.g. in-house sales staff, independent agents, a combination of both, network marketing, etc)

34. Copyright 1999 ISG-Telecom Consultants 727-738-5553 www.isg- telecom.com 33 Elements of a CLEC Tariff

35. Copyright 1999 ISG-Telecom Consultants 727-738-5553 www.isg- telecom.com 34 Check Sheets Table of Contents Explanation of Symbols Tariff Format Technical Terms & Abbreviations Rules & Regulations Service Descriptions Service Availability Rates & Charges

36. Copyright 1999 ISG-Telecom Consultants 727-738-5553 www.isg- telecom.com 35 Types of Tariffs CLEC - Local services IXC - Long distance services ACCESS - Used to sell services wholesale to other CLEC’s

37. Copyright 1999 ISG-Telecom Consultants 727-738-5553 www.isg- telecom.com 36 Types of Filings Types of Filings

38. Copyright 1999 ISG-Telecom Consultants 727-738-5553 www.isg- telecom.com 37 CLEC (Competitive Local Exchange Carrier) - Allows the company to offer Local dial tone including all voice and data services IXC (Inter-exchange Carrier) State - Allows the company to offer IntraState/InterLATA long distance services IXC (Inter-exchange Carrier) Federal - Allows the company to offer InterState long distance services 214 Federal - Allows the company to offer international long distance services

39. Copyright 1999 ISG-Telecom Consultants 727-738-5553 www.isg- telecom.com 38 Types of CLEC Interconnections

40. Copyright 1999 ISG-Telecom Consultants 727-738-5553 www.isg- telecom.com 39 Physical Interconnection There are many ways to physically interconnect two networks, the 3 basic methods are end-point fiber meet, Mid-span fiber meet, and leased facilities. First we will take about an end-Point meet, perhaps the most common method of physical interconnection. Under an End-Point the CLEC will build fiber from its data center to the ILEC CO and the ILEC will build fiber from its CO to the CLECs data center. Each party will install a MUX on its side of the link and provide a MUX to the other party for the other.

41. Copyright 1999 ISG-Telecom Consultants 727-738-5553 www.isg- telecom.com 40 End-point Fiber Meet Once an end point meet is established the parties may use it for local traffic interconnection or for access to unbundled network elements (UNEs). Mid-span fiber meet is where each party builds fiber to one common mid point. The fiber is then spliced together and each party installs a MUX on it’s own end. The advantage of a mid-span fiber meet is that the CLEC only need to come up with one MUX and the fiber build is shorter. In fact many ILECs will just build the fiber to the CLECs data center instead of going through the hassle of splicing the fiber.

42. Copyright 1999 ISG-Telecom Consultants 727-738-5553 www.isg- telecom.com 41 Mid-span Fiber Meet The downside of a min-span fiber meet is that because the facilities are shared they only can be used for interconnection. If the CLEC needs a T1 to an end customer it cannot order it as a UNE over a mid-span fiber meet. Because of this restriction many CLEC’s opt for an end-point fiber meet or start with leased facilities and then later expand to an end- point fiber meet.

43. Copyright 1999 ISG-Telecom Consultants 727-738-5553 www.isg- telecom.com 42 Leased Facilities The 3rd common method of physical interconnection is called leased facilities. In such an arrangement the ILEC would most likely build an end-point fiber meet to the CLEC for the purpose of terminating its traffic on the CLEC’s network. The CLEC could then lease facilities back to the ILEC over it’s end-point fiber meet as standard UNEs. The CLEC also could use a third party to get its traffic back to the ILEC.

44. Copyright 1999 ISG-Telecom Consultants 727-738-5553 www.isg- telecom.com 43 Logical Interconnection A CLEC must determine if they require one-way or two-way trunking. One-way trunks were the 1st methods used to exchange switch traffic. With a one- way trunk, calls can only travel one way. For calls to move in both directions between switches two one- way trunk groups would need to be established between the two switches.

45. Copyright 1999 ISG-Telecom Consultants 727-738-5553 www.isg- telecom.com 44 One-way Trunking If the traffic flows between the two switches is mainly two-way, then one-way trunk groups will be very inefficient. Example: We have two 4 T1 one-way trunks between switch A and B, each switch and terminate 96 calls on to each other. If the call volume jumps and more then 96 trunks are needed the call will get blocked (busy) even if there are only 60 calls moving the other direction. To account for this trunk groups had to be over provisioned so that they still could maintain a low blocking.

46. Copyright 1999 ISG-Telecom Consultants 727-738-5553 www.isg- telecom.com 45 Two Way Trunking Two-way trunks groups solve this problem, because calls can go in either direction on the trunk groups, this can drastically LOWER the number of switch ports. If we have 8 T1s in a two-way trunk group, we can have more calls one direction one day and the opposite direction another day on the same trunk group. A CLEC needs to determine what the traffic flow will be between the CLEC and the ILEC switch because it can have a huge effect on trunking cost. When one-way trunks are used each party pays for the trunks necessary to terminate its traffic on the other parties network, while the cost for two-way trunks groups are shared between the two parties.

47. Copyright 1999 ISG-Telecom Consultants 727-738-5553 www.isg- telecom.com 46 If the CLEC’s primary business is to supply ISP’s access, most of its traffic would be from the ILEC to the CLEC. It would make sense for the CLEC to then use one-way trunking because the ILEC would bare all the cost to terminate its traffic on the CLECs network. If however the CLEC is going after business or residential traffic it may want to use two- way trunk groups and share the cost with the ILCE, thus lowering the number of switch ports. Two Way Trunking (cont’d.)

48. Copyright 1999 ISG-Telecom Consultants 727-738-5553 www.isg- telecom.com 47 Collocation One of the options is to colo in the ILEC’s central office; from there you have access to copper plant via UNEs. CLECs that wanted colo space in a CO were using a 10’ by 10’ cage, if the CO had space. Today the ILECs are forced to provide CLECs shared cage and cage-less colo. If the ILECs say they don’t have space, the ILEC must permit the CLEC a tour of the entire central office. The ILEC must provide a list of all offices in which there is no more space. ILECs must also remove obsolete, unused equipment in order to facilitate the creation of additional collocation space within a CO. What equipment can be put in a CO is still limited. The ILEC’s may NOT require CLEC’s equipment to meet more stringent safety requirements then those the ILEC imposes on its own equipment. This has allowed many CLEC’s to place equipment in COs, but many times the equipment still must be certified NEBS compliant. Many CLEC’s have been looking at alternatives to physical colo in an ILEC’s central offices. This is primarily because of the cost associated with a CLEC gaining access and the limitations put on them. Another popular method is for the CLEC to place its equipment in a building (hut) next to the CO or build an equipment shelter next to the CO. The CLEC then builds a copper cable to the ILEC’s CO. Then the CLEC orders UNE loops like it would if it was physically collocated. The loop would be run from the ILEC MDF to the CLEC copper frame. This method of access is still not looked at fondly by the ILECs, but is technically feasible.

49. Copyright 1999 ISG-Telecom Consultants 727-738-5553 www.isg- telecom.com 48 How Long Does it Take to Become a CLEC How Long Does it Take to Become a CLEC

50. Copyright 1999 ISG-Telecom Consultants 727-738-5553 www.isg- telecom.com 49 PUC Timetables How Long Will My Tariff and Certification Take? Assuming ALL of the required client documents are provided promptly at the start of the project, the estimated processing time at the State Utility Commissions are as the following chart. This does not include the three to four weeks, from receipt of the required documents, to prepare the certification papers and tariff for your CLEC entity. Please remember that these are estimated approval time frames.

51. Copyright 1999 ISG-Telecom Consultants 727-738-5553 www.isg- telecom.com 50 Alabama 4 monthsAlaska4 monthsArizona3 months Arkansas 3 monthsCalifornia3.5 monthsColorado4 months Connecticut 4 monthsDCNot Required Delaware 45 days Florida 4 monthsGeorgia4 monthsHawaii3 months Idaho 30 daysIllinois4 monthsIndiana2 months Iowa not requiredKansas2.5 monthsKentucky4 months Louisiana 2 monthsMaine3 monthsMaryland2 monthsMass. 30 daysMichigannot required Mississippi2 months Missouri 4 monthsMontananot requiredNebraska3 monthsNevada 2 monthsN.H.4 monthsN.J.45 days New Mexico 4 monthsNew York 3 monthsN.C.5.5 months N. Dakota 2 monthsOhio2 monthsOklahoma5 months Oregon 2.5 monthsPenn.3 monthsR.I. 30 days S.C. 6 months S.Dakota3 monthsTennessee30 days Texas 1 dayUtahnot requiredVermont4 months Virginia not requiredWash.2 monthsW. Virginia3 months Wisconsin 3 monthsWyoming1 day Disclaimer: These time frames can vary dramatically depending on the work load of the staff at the individual PUC.

52. Copyright 1999 ISG-Telecom Consultants 727-738-5553 www.isg- telecom.com 51 Typical Costs to become a “Facility-Based” CLEC

53. Copyright 1999 ISG-Telecom Consultants 727-738-5553 www.isg- telecom.com 52 State Certification: $5,000-$7,500 (depending on the state and complexity of service offerings) Interconnection Agreement: $7500.00-$25,000.00 (depending on whether opt-in or negotiations are necessary - arbitration's are extra) Obtaining Required Codes: $2,500.00 (CIC, OCN, IAC) Tax Compliance Software: $3,000.00 (annual subscription) Network Interconnection: $2,500.00 BETA Testing: $2,500.00 Tandem Switch: (64 T-1's) $300,000.00 Misc. Data Center: $275,000.00 (power systems, HVAC systems, Security, Rack, Fire protection, Raised Floor & transmission hardware) *These costs are approximate and based on a typical project. Actual final costs may be less

54. Copyright 1999 ISG-Telecom Consultants 727-738-5553 www.isg- telecom.com 53 Process Timing Phase I (Regulatory) - Generally, Tariffs can be prepared and filed within 30 days from the time all corporate information is available. State PUC approval time varies from 1 day to 6 months. Phase II (Equipment) - The timing here varies tremendously depending on the equipment selection method and speed at which the ISP decides on the equipment type and vendor. Delivery time on switches varies from 1 month to 4 months depending on the complexity of the configuration. This can be done simultaneously with Phase I. Phase III (Back Office) - Again, this is done during the equipment selection and deployment process. When the switch is being set up, configurations tie in to various support vendors is established.

55. Copyright 1999 ISG-Telecom Consultants 727-738-5553 www.isg- telecom.com 54 Conclusion Becoming a Switchless Reseller or a facilities-based CLEC has many benefits - financially as well as to ensure survivability in a very competitive market environment, it is not a simple process that can be done overnight. Financially, the best operational margins come from being a facilities-based CLEC, which can require a significant capital investment in a switch or tandem/voice switch. Fortunately, this investment is often more than covered by the savings gained from reduced ISP telecom costs.